The Strategic Partnership Due Diligence Questionnaire

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Section 1: Corporate Structure, Viability & Economic Substance

1.1 Detail the specific, non-tax "Business Purpose" of this transaction. Under IRC 7701(o), how does this transaction effectuate a meaningful change in the taxpayer's economic position absent federal, state, and local income tax effects? Will this strategy generate a pre-tax return on investment?

1.2 Has this specific strategy, or its underlying structural mechanics, been evaluated against the threshold "relevancy" determination of the codified Economic Substance Doctrine as recently adjudicated in Patel v. Commissioner (165 T.C. No. 10)?

1.3 Does the strategy rely upon a sequence of intermediary steps, circular cash flows, or straw-man entities that, if collapsed under the Step Transaction Doctrine, would possess no standalone economic validity?

1.4 Please delineate the total investment lifecycle. When and how does the client exit the structure, and precisely what will be the tax treatments, recapture triggers, or phantom income risks upon exit? What is the annual closure deadline?

Section 2: Technical Tax Authority & Legal Opinion Integrity

2.1 Provide a complete, unredacted formal Tax Opinion from a reputable, independent third-party law firm or accounting firm. What is the explicit level of assurance provided in the opinion regarding the merits of the strategy (e.g., Reasonable Basis, Substantial Authority, More Likely Than Not, Should, or Will)?

2.2 Does the provided Tax Opinion contain explicit "Assumptions" or "Representations" that the taxpayer possesses a valid business purpose, or does the opinion independently evaluate the business purpose based on the transaction's inherent mechanics?

2.3 Identify the specific Statutory Authority (IRC sections), Treasury Regulations, and relevant Case Law that explicitly authorize this structural framework. Are there any contrary authorities or pending litigations? Does this specific transaction possess a Private Letter Ruling (PLR) or Revenue Ruling?

2.4 On an aggression scale of 1 to 10 (1 indicating total alignment with safe harbor provisions, 10 indicating high likelihood of IRS litigation and civil penalties), how do you score this strategy, and what specific technical elements dictate that score? Is this strategy "Too Good to Be True" (huge deductions with zero out-of-pocket cost)?

Section 3: IRS Compliance, Dirty Dozen & Material Advisor Scrutiny

3.1 Is this strategy, or any substantially similar variant thereof, currently identified on the IRS "Dirty Dozen" list, or classified as a Listed Transaction or Transaction of Interest? Are there any broad Anti-Abuse rules applicable to this section of the code? If not, why not (explain, in detail)?

3.2 Does the firm, its principals, or any intermediaries qualify as a "Material Advisor" under IRC 6111? If so, provide the OTSA-issued Reportable Transaction Number and confirm adherence to IRC 6112 list maintenance requirements.

3.3 Have any of the firm's principals, managing directors, or the drafting attorneys of the Tax Opinion ever been subject to promoter penalties under IRC 6700 or 6701, or enjoined from practice under IRC 7408?

3.4 For strategies involving wage-based credits (e.g.. ERC), describe your independent verification process for documenting qualifying government orders and supply chain disruptions per OPR Bulletin 2023-02, ensuring strict due diligence accuracy.

Section 4: Financial Profiling, Fee Structures & State Complexities

4.1 Disclose the complete fee structure for the client. Are any fees calculated on a contingency basis (i.e., a percentage of the tax savings)? If so, provide a legal justification for how this complies with Treasury Circular 230, Section 10.27.

4.2 Are there any referral fees, kickbacks, or revenue-sharing agreements between your firm and the attorneys drafting the tax opinion, valuation appraisers, or financial intermediaries? Provide a comprehensive conflict of interest disclosure.

4.3 Identify the specific tax constraints and limitations. Is the benefit a deferral, a deduction, or a credit? What is the ratio of deduction to investment? Does it trigger the Alternative Minimum Tax (AMTI), EBL limitations, or specific State-level disallowance? What else have we not asked that is relevant to this transaction?

4.4 Please provide comprehensive backup documentation, including functional illustrations demonstrating how the structure works mechanically, and anonymized examples of the required tax reporting documents and IRS forms.

Section 5: Risk Transfer, Insurance & Cybersecurity Architecture

5.1 Provide the Declarations Page for the firm's Errors and Omissions (E&O) and Professional Liability insurance. Confirm the policy limits, deductibles, and whether the policy features "prior acts" or tail coverage.

5.2 Does the E&O policy or any provided "Audit Defense" indemnification contractually cover the client's underlying tax liability, IRS-assessed interest, and civil penalties, or is it strictly limited to professional representation fees?

5.3 Outline the Audit Defense protocols. Will your firm act as the Power of Attorney (Form 2848)? How are Information Document Requests (Form 4564) handled, and what is the internal timeline for response?

5.4 Submit a comprehensive Cybersecurity and Vendor Risk Assessment Questionnaire (VRAQ). How does your infrastructure secure client PII/PHI? Confirm compliance with SOC 2 Type II or NIST frameworks, and detail your data breach notification protocols.

5.5 If your strategy includes Tax Liability Insurance, does the policy specifically grant affirmative coverage for 'known tax risks, and what are the explicit exclusions (e.g., are there exclusions for a 'change in law' or 'promoter fraud )?

Section 6: Additional Questions (Various)

Do you utilize any offshore personnel, outsourced vendors, or third-party contractors to process financial data? If so, how do you specifically comply with the strict taxpayer consent requirements under IRC Section 7216?

Are any of your principals, CPAs, Enrolled Agents, or authoring attorneys currently listed on the IRS Office of Professional Responsibility (OPR) disciplinary look-up database for censures, suspensions, or disbarments?

What is your internal due diligence process for verifying the competence and true independence of the third-party appraisers or valuation experts you rely on, as required by Treasury Circular 230 Section 10.22

How long has your firm specifically offered this exact strategy, and what financial or structural guarantees exist that your firm will still be operational in 3 to 5 years when an IRS audit is most likely to occur?

Do you track state-specific reportable transaction laws, and does this strategy trigger independent disclosure requirements in states whose rules diverge from federal IRS Listed Transaction definitions?

The Strategic Partnership Due Diligence Questionnaire